Chinese Government Nods to Hong Kong’s Crypto Ambitions
The Chinese government seems to be reconsidering its stringent anti-cryptocurrency stance, at least concerning Hong Kong.
Allegedly, Hong Kong has recently pivoted its focus to become a hub for cryptocurrency, reportedly gaining subtle approval from Beijing.
As per a report by Bloomberg, Chinese officials have indirectly endorsed Hong Kong’s recent initiatives to re-establish itself as a cryptocurrency hub. While cryptocurrency remains prohibited in mainland China, Beijing appears to be allowing Hong Kong to develop its crypto industry.
Several positive indicators have surfaced, including the participation of China’s Liaison Office in Hong Kong’s recent cryptocurrency events, where officials have exchanged business cards and contact information with industry leaders in a friendly manner and followed up on projects.
Additionally, the Chinese government has explicitly supported the city, evident in People’s Bank of China governor Yi Gang’s discussions on China’s central bank digital currency and the government’s close collaboration with Hong Kong at major city events.
“As long as one doesn’t violate the bottom line, to not threaten financial stability in China, Hong Kong is free to explore its own pursuit under ‘One Country, Two Systems,’” National People’s Congress member Nick Chan told Bloomberg.
In a recent consultation paper, the Securities and Futures Commission of Hong Kong proposed allowing retail investors to trade large-cap cryptocurrencies on licensed exchanges, subject to specific requirements. Exchanges seeking such licenses would need to conduct knowledge tests, assess risk profiles, and establish reasonable exposure limits.
What adds more intrigue is the recent surge in China-based blockchain companies, some seeing a 500% increase in the last week, following the central bank’s decision to halt interest rate hikes.
On Monday, the central bank opted to maintain its interest level, resulting in a liquidity boost that spilled over into the cryptocurrency ecosystem.
Moreover, Bitcoin appears to be increasingly correlated with Chinese stocks. Over the past 12 months, Bitcoin has displayed a strong correlation with US stocks. Is there a shift happening? Refer to the chart comparison below.
Credit to tedtalksmacro for much of the following information:
Just last week, the Chinese central bank executed its largest-ever liquidity injection to lift its economy from historically low levels.
While most investors and analysts focus on the Fed’s tightening and its direct impact on risk-on assets in this cycle, are they overlooking the scale of easing in the East?
It’s crucial to remember that while the US boasts the world’s largest economy, China holds the world’s second largest economy, growing 2.2% faster than the US.
Additionally, the People’s Bank of China (PBoC) is the world’s third-largest central bank with over $6 trillion in assets, playing a significant role in global liquidity.
Abandoning the ‘zero covid’ policy in late 2022 has kickstarted China’s economic recovery. Will it return to its robust growth of the early 21st century?
The policy shift has evidently boosted demand and revived consumption, with new Chinese bank loans reaching a record $4.9 trillion Yuan in January, a 23% increase year-on-year.
The PBoC is actively participating and keen to contribute to stimulating the Chinese economy once again.
Some economists and analysts even anticipate that the PBoC will cut rates in the coming months to further support and prolong economic recovery.
Moreover, Japan (the world’s fourth-largest central bank) is injecting liquidity alongside China into the global markets, surpassing the US Federal tightening efforts.
At times, analysts and investors narrow their macro view to just the US, overlooking global liquidity and other crucial central banks.
For instance, while the Federal Reserve of the US is tightening, some of the world’s largest central banks are easing, causing a surge in global liquidity.
Conclusion:
China’s quiet support of Hong Kong’s crypto ambitions could signal a broader shift in the global digital asset landscape. While mainland restrictions remain, Beijing’s tolerance of Hong Kong’s growing role as a crypto hub is a clear nod to the industry’s potential. Combined with massive liquidity injections from the People’s Bank of China and easing policies from Japan, the global environment is becoming increasingly favorable for cryptocurrency adoption and growth.
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